JPMorgan upgraded Dollar General (NYSE:DG) to Overweight from Neutral and assigned a price target of $166, citing expectations for sustained same-store sales growth and expanding profitability.
The analyst said Dollar General was positioned to generate 2% to 3% or higher same-store sales growth over multiple years, supported by new store openings and store renovation and remodeling initiatives that were expected to contribute roughly 200 basis points. Additional company-specific drivers included a discretionary merchandise reset and the Value Valley initiative.
JPMorgan also pointed to a supportive macroeconomic backdrop for Dollar General’s core customer, highlighting tailwinds from trade-in and trade-down behavior as well as improving employment conditions. Combining these factors, the firm modeled approximately 2.5% same-store sales growth, 1% to 2% net store growth, and around 30 basis points of annual gross margin expansion. Margin gains were expected to be driven by improved initial markups, reduced shrink, favorable merchandise mix, growth in DG Media, transportation efficiencies, health and beauty expansion, and private-brand penetration.
The analyst further projected SG&A leverage at just over 3% comparable sales growth, resulting in estimated earnings per share growth of 12% to 13%. Dollar General was also expected to generate more than $1 billion in annual free cash flow after dividends.
